Understanding the 2025 Road Tax Changes

Until now, electric vehicles (EVs) have enjoyed full exemptions or reduced rates to Vehicle Excise Duty (VED), but from April 2025, the road tax rules are changing. Below we’ll break down exactly what’s changing, why it’s happening, and what it means for your fleet strategy. Whether you’re planning future vehicle purchases or reassessing your replacement cycles, staying ahead of these changes will help you manage costs effectively.

What is Vehicle Excise Duty?

If you manage a fleet, you’re no stranger to VED – that annual tax that keeps your vehicles legally on the road. The amount payable depends on factors like emissions, registration date and vehicle type. Historically, lower-emission vehicles, including EVs, have benefited from reduced rates or full exemptions. However, this is set to change.

A Breakdown of the VED Changes:

Standard VED Rates	Standard VED rates for cars, vans, and motorcycles (excluding first-year car rates) will increase in line with the Retail Price Index (RPI).
New EVs registered on or after 1 April 2025	£10 for the first year, rising to the standard annual rate of £195 from year 2 onwards.
EVs registered 1 April 2017 – 31 March 2025	Standard annual rate (from 1 April 2025): £195
EVs registered 1 March 2001 – 30 March 2017	Band A cars (previously £0) will move to the Band B rate at £20 per year
All Other Emission Bands (Hybrid and ICE)	1-50g/km CO2 at £11051-75g/km CO2 at £13076g/km+ CO2 and above will be double the current rates
Zero-Emission Vans	Electric vans will be taxed at the same rate as petrol and diesel light goods vehicles (currently £335 per year for most vans).

Expensive Car Supplement

From April 2025, electric cars will no longer be exempt from the UK’s “luxury car tax”.  This tax applies to cars costing over £40,000 and will add £425 per year from years 2 to year 6 of ownership, on top of the standard VED of £195. This means a total annual cost of £620 from years two to six – and also applies to second-hand EVs if their original list price was over £40,000.

Why the Changes?

The Government’s aim, as outlined in the 2024 Autumn Budget, is to further incentivise the adoption of zero-emission vehicles by widening the tax gap between EVs and ICE vehicles. While the introduction of an EV tax might seem contradictory, higher VED for ICE vehicles will make EVs more cost-effective in the long run. Especially with the lower running and maintenance costs and lower cost of charging. For fleet managers, this means balancing short-term cost increases for EVs with long-term savings as ICE vehicles become increasingly expensive to maintain and tax.

What This Means for You

• New Vehicle Purchases: If you are planning to purchase a new vehicle, especially a zero-emission vehicle, you will now need to account for the VED from the first year of registration.
• Existing Vehicle Owners: For those who already own a vehicle, the annual VED you pay will increase in line with the RPI.

You can check your annual Vehicle tax here.

Top Tip: If your vehicle’s VED renewal is due around April 2025, check if renewing early could benefit you, and consider your vehicle replacement cycles to potentially save money before the new rules take effect.

Looking Ahead

Despite these additional costs, when considering the TCO of EVs – factoring in their running costs, they’re still one of the most cost-effective fleet vehicles available. Other incentives for electric are also available. Some regions, like London, are already exploring ways to subsidise loans through partnerships with car finance providers to make EV ownership more accessible.

Also if you operate a limited company, you can claim a 100% First Year Allowance against your corporation tax for buying a new fully electric car. For leased EVs, full monthly rental payments are deductible expenses against profits, reducing corporation tax.

So, it’s not all bad news, and we’re here to help no matter where you are on your EV journey.

Stay informed! Follow us on LinkedIn for the latest updates and government announcements.